What is margin level? In simple terms, when you trade with leverage, your margin level shows the health of your account as a percentage. It compares your live equity with the margin already being used to keep your open positions active.
If your trades move against you and your margin level falls too far, your broker’s platform may automatically close some or all of your positions. This is designed to reduce further losses, but it can happen without manual approval.
Quick Takeaways: What Is Margin Level and Why Does It Matter?
- Margin level compares your account equity with your used margin.
- A 100% margin level may trigger a margin call, which can stop you from opening new positions.
- A 50% margin level is often used as a stop-out level, where positions may be closed automatically.
- Market gaps and wider spreads can cause your margin level to fall quickly, sometimes before you can react.
How to Calculate Margin Level
To understand what is margin level in practice, start with how it is calculated. Your account balance only changes when you close a trade, but your equity changes constantly as market prices move. Because your margin level is based on equity rather than your account balance, it rises and falls with every price movement.
The formula is:
Margin Level (%) = (Equity / Used Margin) × 100
For example, suppose you deposit £10,000 and open positions that require £2,000 in used margin. If the market has not moved, your equity remains £10,000, giving you a comfortable margin level:
[\text{Margin Level} = \left( \frac{£10,000}{£2,000} \right) \times 100 = 500%]
If the market moves against your positions and your unrealised losses reduce your equity to £4,000, your margin level falls to 200%.
How quickly your margin level changes depends largely on your leverage. Higher leverage reduces the amount of margin needed to open a position, but it also means your margin level can rise or fall much more quickly in response to relatively small market movements. To learn more, see our guide on what is leverage in trading.
Margin Level vs Free Margin: What's the Difference?
Although margin level and free margin are closely related, they measure different aspects of your trading account.
- Margin level is shown as a percentage (%) and indicates how close your account is to a margin call or stop-out.
- Free margin is shown as a cash amount (such as £ or $) and represents the funds available to open new positions or absorb further losses.
- Margin level changes as your equity rises or falls in relation to your used margin. A lower percentage means your account is under greater pressure.
- Free margin decreases as your equity falls. Once it reaches zero, you no longer have available funds to support additional positions.
If your equity falls until it matches your used margin, your free margin becomes £0. At the same time, your margin level falls to 100%, which may trigger a margin call, depending on your broker's requirements. If your losses continue to increase, your margin level may eventually reach the broker's stop-out level, where some or all of your open positions are closed automatically.
Critical Thresholds: Margin Calls and Stop-Outs
Knowing what is margin level becomes especially important once your account approaches a critical threshold. Brokers use automated risk controls to help limit losses on leveraged accounts. If your margin level falls below certain thresholds, restrictions are applied automatically to reduce the risk of your account moving into a negative balance.
The 100% Threshold: Margin Call
When your equity equals your used margin, your margin level falls to 100%. At this point, many brokers issue a margin call.
A margin call usually means you can no longer open new positions. To improve your margin level, you may need to:
- Close one or more existing positions.
- Deposit additional funds into your account.
- Wait for your open positions to recover, if market conditions allow.
To learn more, read our guide on what is a margin call.
The 50% Threshold: Stop-Out Level
If your margin level continues to fall, you may eventually reach your broker's stop-out level, which is often 50%, although this varies between brokers and account types.
At the stop-out level, the trading platform automatically closes one or more losing positions to release used margin and reduce the account's overall risk. This process continues until your margin level rises above the broker's required threshold or all open positions have been closed.
Important: Margin call and stop-out levels differ between brokers. Always check your broker's trading conditions before using leverage, and confirm your broker is authorised and regulated via the Financial Conduct Authority's (FCA) Financial Services Register.
Fast Markets Can Trigger Stop-Outs Quickly
In highly volatile markets, prices can change sharply within seconds. Market gaps, rapid price movements and wider spreads can cause your margin level to fall much faster than expected.
As a result, positions may be closed automatically before you have time to react. The final execution price may also differ from the price you expected because of market conditions, particularly during periods of high volatility.
Why Your Margin Level Can Fall Suddenly
Even a healthy margin level can drop quickly if market conditions change unexpectedly. In some situations, your margin level may fall much faster than you expect, increasing the risk of a margin call or stop-out.
Market Gaps
Markets do not always move in a continuous line. After weekends or major events, prices can reopen significantly higher or lower than the previous closing price.
If the market gaps against your position, your stop-loss order may be filled at the next available price rather than your chosen level. This can result in larger losses than expected and cause your margin level to fall sharply.
Spread Widening
Spreads often widen during major economic announcements, periods of low liquidity or around the daily market rollover.
A wider spread can temporarily reduce your account equity because open positions are valued using the current bid and ask prices. Even if the underlying market price changes very little, a wider spread can still lower your margin level.
Higher Margin Requirements
Before major economic events or during periods of increased market volatility, some brokers may raise their margin requirements for certain instruments.
When this happens, the amount of used margin needed to maintain your open positions increases. If your equity remains unchanged, your margin level falls automatically because the calculation is based on the ratio of equity to used margin.
Important: Margin requirements, spread conditions and stop-out levels vary between brokers. Always check your broker's trading conditions, particularly before major market events.
Managing Your Margin Level Going Forward
Understanding what is margin level, and reviewing it regularly, is one of the simplest ways to protect your account from unexpected stop-outs.
Your margin level is one of the most important indicators of your account's overall health when trading with leverage. Monitoring it regularly can help you manage risk, avoid unnecessary margin calls and reduce the likelihood of automatic position closures.
Maintaining a comfortable margin level starts with sensible position sizing, appropriate use of leverage and an awareness of how market volatility can affect your open trades, particularly during major news events, overnight sessions and weekends.
If you'd like to compare how different providers apply leverage, margin requirements and stop-out rules, see our independent CFD broker reviews.
FAQ
What is a good margin level in trading?
A safe margin level typically sits well above 500%. This provides a substantial buffer against sudden market volatility, spread widening, or dynamic margin requirement increases by your broker, reducing the immediate risk of forced liquidation.
What happens when margin level reaches 100%?
When your margin level hits 100%, it means your account equity exactly equals your used margin. This triggers a margin call, causing the platform to freeze your buying power so you can no longer open new positions.
Can your margin level go below 0%?
In theory, no, because platforms liquidate trades at the stop-out level (often 50%). However, during extreme market crashes or weekend gaps, execution slippage can cause positions to close at worse prices, occasionally pushing account equity into negative territory before the risk engine finishes liquidating.
What is the difference between margin level and free margin?
Margin level is a percentage-based ratio that indicates overall account health and liquidation proximity. Free margin is the nominal cash value remaining in your account asset currency that dictates your immediate buying power for opening new positions.
How does used margin affect my margin level?
Used margin is the denominator in the margin level equation. Opening more positions or trading with lower leverage increases your used margin, which automatically compresses your margin level percentage and pushes you closer to liquidation thresholds.